Purchasing a home is one of the most significant decisions and investments you will make in your life. The majority of our customers are first-time homebuyers, so we’ve compiled frequently asked questions and tips to ensure a seamless first-time home buying experience for you!
How does a mortgage/loan work with a new construction home vs. financing a used home?
Financing your new home with Focus works the same as purchasing a used home. Typically, new construction loans are required when building a new construction home. This type of financing is a short-term loan where you make multiple payments as the house is being built; it works in a series of advances called “draws.” With Focus Homes, you avoid the frustration and often costly process due to the upfront payments of a new construction home loan. Once you have made your initial deposits, there will be no payments due during your build process.
Do I start making mortgage payments after signing the contract or when the house is finished being built?
You will start contributing to your monthly mortgage payments after you have closed on your new home. Since Focus Homes doesn’t use new construction loans, you will not have to worry about making mortgage payments during construction.
When and why do I need to put down a deposit, and does it go towards my down payment?
A deposit, also known as an earnest money deposit (EMD), is all that we require to start building your new home. It’s used as a placeholder to confirm your intent to purchase the property. For most locations, the initial deposit will be paid when the contract is signed. Although dependent on division, the second deposit will typically be collected 30-45 days after you sign the contract and have received conditional approval from your lender. You’ll be required to pay the remainder of your down payment at the time of closing, which your lender determines prior. For example, say you allocate $15,000 for your home’s downpayment, and you pay $5,000 for the deposit upfront. When the home’s complete and you’re ready to close, you’ll owe the remaining $10,000. A deposit is not a down payment but is either 1) credited toward your total down payment at the time of closing, or 2) credited towards the sales price of the house. For any questions, please reach out to the appropriate sales rep from the division you wish to build.
How much of a deposit is needed?
Although it varies by model and location, you can expect to pay roughly $5,000 as a Focus Homes’ deposit. In some instances, $2,500 for your initial deposit and $2,500 as your second deposit as noted above (#3).
How much cash will I need and when?
The amount of cash needed will vary per homebuyer depending on the final sale price, loan choice, and downpayment size. Initially, when the contract is signed, you’ll need cash funds to cover the deposit. Once your home is complete (approximately 8-12 months), you’ll be required to pay the remaining amount of the down payment, as well as any closing costs and expenses associated with closing on your new home.
Can I use a personal lender, or do I need to use the builder’s preferred lender (FBC Mortgage)?
You are permitted to use a lender of your choice or our preferred lender, FBC Mortgage. With Focus Homes, we may require you to prequalify with FBC Mortgage in order to write a contract with a deposit on the home. Using our lender provides excellent incentives, such as covering a portion or occasionally the entire amount of closing costs less any prepaid or buydown points.
There are a few costs to keep in mind when thinking about purchasing a home:
- Earnest Money Deposit (EMD): an initial cash deposit to show your intent to purchase a property. When it’s time to close, the earnest money will go toward your downpayment.
- Down Payment: the initial payment or amount of money you put down on the loan upfront at the closing time. Remember, with Focus Homes, the downpayment is not due until closing, and the initial payment is considered a deposit. Although the cost of your down payment depends on the type of mortgage chosen and your credit score, it can be pricey. A downpayment can range from 3%-20% of the sales price. To put things into perspective, the average down payment for first-time homebuyers is 7%. A 7% downpayment on a $250,000 home is $17,500. Keep in mind, the higher the downpayment, the lower your monthly mortgage payments will be.
- Closing Costs: the expenses paid at closing to finalize your mortgage. Closing costs typically range from 2%-5% of the loan amount. For example, if your home costs $150,000, expect to pay between $3,000 and $7,500 in closing costs.
- Move-in Expenses: In a used home, additional out-of-pocket costs can include expenses such as home repairs, upgrades, and new furnishings. We recommend allocating specific savings for unexpected expenses post-move-in. When building a new construction home with Focus Homes, your move-in expenses will be minimal since every aspect (besides furnishings) will be brand new and under warranty. Learn more about Buying Old vs. Building New.
- Homeowners Insurance: a policy required by your lender at closing that covers the cost to repair or replace your home and belongings if damaged in an accident. We recommend purchasing enough home insurance to cover the cost of rebuilding your house.
On top of the earnest money deposit and downpayment, make sure you’re saving consistently and early to prepare for these additional costs.
Calculate Your Finances & Stick to a Budget
It’s essential to determine how much you can realistically spend before setting out to shop for your dream home. Ensure that your debt to income is low and your credit score is in good standing by paying your bills on time and keeping credit card balances as low as possible. Your credit score and debt to income will determine whether you qualify for a mortgage and the interest rates offered by lenders.
In some cases, a lender may offer to loan you a more considerable amount than what is comfortably affordable for you, or a bidding war may pressure you to spend outside your comfort zone. Remember to set a price range based on your budget and stick to it to avoid financial stress down the road. If you’re unsure what your budget should be, our lender, FBC Mortgage, has a monthly payment calculator to help you figure it out.
Explore Mortgage Options
Consider the varying down payment and eligibility requirements in different mortgages. We break down the four main categories below:
- Conventional Mortgages: A loan that is not backed by a government agency. They are the best option for borrowers with strong credit above 620 and can contribute a downpayment of at least 5%.
- FHA Loans: A loan insured by the Federal Housing Administration. They are helpful for buyers with limited savings or lower credit scores (580 or higher). They insure mortgages issued by lenders: banks, credit unions, and nonbanks. Buyers should note that there’s an additional expense with FHA loans in the form of a mortgage insurance premium.
- USDA Loans: A zero-down-payment mortgage for low-income borrowers who cannot afford to get a traditional mortgage. They’re issued through the USDA loan program, also known as the USDA Rural Development Guaranteed Housing Loan Program, by the United States Department of Agriculture. Buyers should note that there are additional expenses with USDA loans in the form of the Guarantee Fee and the Annual Guarantee Fee.
- VA Loans: A loan guaranteed by the U.S. Department of Veterans Affairs and issued by a private lender: bank, credit union, or mortgage company. They typically do not require a down payment, and the government will repay the lender a portion if the borrower cannot make payments. Only qualified U.S. veterans, active-duty military personnel, and some surviving spouses are eligible for VA Loans. Focus Homes buyers will still need to make the Earnest Money Deposits as stated above. With VA loans, the amount of the two separate deposits are reduced to $2,000.
You also have options for the term of the mortgage as well. Usually, home buyers opt for a 30-year fixed-rate mortgage, where the interest rate stays the same, and the loan will be paid off in 30 years. There are also 15-year loans, where the interest rate is significantly lower, but the monthly payments are more considerable. When choosing a mortgage and term, remember the budget you set for yourself and what funds you can afford monthly. If you’re unsure which loan works best for you, we recommend reaching out to our preferred lender, FBC Mortgage.
Do Your Research
The most important part of the home buying process is doing your research. After solidifying your budget, research various locations and neighborhoods. Weigh the pros and cons of different types of homes (townhomes, single-family homes) given your lifestyle. You can always discuss housing and location options with a Focus Homes online concierge at any time, too.
Attend as many open houses as possible, in person or virtually. In-person, be sure to keep your senses open and ask about electrical and plumbing systems and the roof. Virtually, utilize online tools such as 360 Tours to walk through homes and observe from the comfort of your own home.
Lastly, make sure to research first-time homebuyer assistance programs! Many states and cities offer first-time homebuyer programs, which often give down payment or closing cost assistance. These programs may also include low-interest rate mortgages or tax credits.
If you’re unsure where to start, reach out to a Focus Homes online concierge for help!
Buying a home for the first time can be demanding and tiresome. Focus Homes is here to help you navigate through the complexities of being a first-time homebuyer. Reach out to a sales representative to get started today!